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Nigeria Can Not Make Debt Repayments, say Officials

October 27, 2009 10:05 PM

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Nigeria Can Not Make Debt Repayments, say Officials

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Nigeria's government says it will not be able to fully meet its foreign debt obligations this year. The announcement has triggered concern among economists, who say nonpayment of the debt could result in inflation and a loss of investor confidence.

Nigerian central bank officials and the country's information ministry are renewing warnings that Nigeria may only be able to pay only about one-half of its obligations on its foreign debt this year.

Nigeria, one of the world's most indebted nations, owes more than $32 billion, mostly to the so-called Paris Club of foreign government creditors.

Central Bank governor Joseph Sanusi announced on Tuesday that the government would have to defer payments, citing a drop in revenues. He said the drop was due to falling oil prices during the past year.

Government officials say Nigeria intends to pay its debt, but will be able to come up with only $1.5 billion of the $3.3 billion it is supposed to pay during 2002.

Central Bank officials had earlier issued the warning to creditors in December.

Economist Doyin Salami, who teaches economics and finance at the Lagos Business School, said a deferment of payments could cause inflation and interest rates to rise. He told VOA that perhaps the worst consequence could be a loss of investor confidence at a time when Nigeria is working to develop its non-oil industries.

"In the past, some of us have tended to take the view that foreign investors would not be coming to Nigeria, at least not ahead of the successful conclusions of elections in 2003, [and wait] to see if Nigeria could successfully change a government," said Mr. Salami. "We have not been able to successfully do that in the past. I think this announcement simply raises the risk profile for foreign investors in the Nigerian economy."

President Obasanjo, whose election in 1999 marked the end of nearly 16 years of military rule, has traveled extensively overseas to promote non-oil investment in Nigeria. His trips, and what some perceive as their lack of success at attracting new investment, have prompted angry public criticism that has fed an ongoing effort by both houses of parliament to impeach him.

Observers say the impeachment efforts, which have centered on a budget dispute, have been meant to damage the Nigerian leader politically as he prepares to run for re-election next year.